Three days after the Senate Finance Committee shocked many of their colleagues in the House this week by unveiling a tax reform proposal that featured more than a few notable deviations from the House plan, Ways and Means Chairman Kevin Brady told Chris Wallace on “Fox News Sunday” that he would not accept the total elimination of the state and local tax deduction, a provision that has become one of the most – if not the most – controversial elements of the Trump tax reform package.
“We want people to keep more of what they earn regardless of where they live, including in these high-tax states,” he said.
Brady’s doubling-down on preserving at least some of the SALT deduction – a position he has maintained since 20 blue-state Republicans voted against the GOP budget to protest the planned removal of the SALT deduction – comes as the House plans to bring its plan for a vote this week. If the bill passes, it would mark an important milestone in the Trump administration’s battle to push through the first “comprehensive” tax reform legislation in 30 years. The vote could come as soon as Thursday or Friday, what would be a week since Brady’s influential committee approved the bill.
The House bill would eliminate existing federal tax breaks for state and local income or sales taxes, but it would preserve a deduction for property taxes, capped at $10,000. Combined with a new family tax credit and a deduction for mortgage interest for new purchases that would be capped at $500,000 of debt, the House bill “gets the job done,” Brady said, adding “I’m committed to it.”
The Senate Finance Committee is scheduled to begin considering its version of the bill - which also departs from the House version by delaying a corporate tax cut until 2019 - on Monday.
Blue-state Republicans are fiercely protective of the SALT deduction since its elimination would disproportionately impact residents in states like California and New York that tend to pay higher taxes. And seeing as passing tax reform would be impossible without their support, Brady says the Senate will need to accept that at least some deductions for state and local taxes need to be included in the final bill.
“I am convinced that this is where we’re going to end up."
With only 11 days left until Thanksgiving, Brady says he’s confident the House will meet its self-imposed deadline of passing its version of the tax reform plan before the national holiday. The Senate has also committed to passing its version of the bill by the Thanksgiving deadline, though, with at least four senators saying they wouldn’t support the bill in its current form, it’s odds of passing are slim.
To be sure, whether the House passes its plan, or doesn’t, by the deadline won’t make much of a difference in the bill’s long-term trajectory if Republicans ultimately can’t agree on a final plan during the reconciliation process.
And already, President Donald Trump is stoking rivalries between the two plans, a potentially divisive strategy, by telling Senate Democrats that he prefers the Senate version to its counterpart in the House.
As a reminder, here’s a summary of some of the key differences between the House and Senate plans:
- 20% permanent corporate tax cut delayed by 1 year
- Complies with the $1.5 trillion cost (will cost $1.44 trillion)
- Preserves 7 tax brackets: top tax bracket is 38.5%, down from 39.6%
- Doubles standard deduction from $12,700 to $24,000 (married couples)
- Ends state and local tax (SALT) deduction; keeps business deduction
- Keeps the mortgage Interest deduction cap at $1 million
- Preserve the estate tax, doubling the current $5.49 million exemption for individuals
- Raises the child tax credit to $1,650 from $1,000
- Sets 10% tax rate for US companies with IP in foreign low-tax jurisdictions
- Full expensing of capital investments for five years
- Preserves 401(k)s IRAs,
- Sets repatriation rate at 12% for liquid assets, 5% for illiquid assets
- Carried interest loophole unchanged
- Electric Vehicle tax credit is spared (good news for Elon Musk)